Bonus depreciation in New York

The rule

Follows federal §168(k) bonus

No

Federal bonus added back in year one

100%

State §179 cap

Follows federal

Full decoupling — the entire federal §168(k) special depreciation deduction is added back on Form IT-225 using addition code A-209. In its place New York allows a depreciation deduction determined under IRC §167 as that section would have applied if the property had been acquired on September 10, 2001 — in practice plain MACRS with no bonus — claimed as subtraction S-213 each year until the property is fully depreciated or disposed of, so the benefit is deferred rather than lost, with a year-of-disposition true-up via S-214. The computation runs on Form IT-398. Beginning with TY2025 the same add-back extends to the new OBBBA §168(n) qualified production property. The only exceptions are resurgence zone property and New York liberty zone property under IRC §1400L(b)(2), neither of which will apply to a typical STR. §179 follows federal with no dollar cap; the single carve-out is a full add-back (code A-208) of any §179 claimed on a sport utility vehicle over 6,000 lbs by a taxpayer who is not an eligible farmer — worth catching if the owner expensed a heavy vehicle against the rental.

What that costs, worked

Take a cost-segregation study that produces $250,000 of federal bonus depreciation and $50,000 of §179 in the first year — a realistic result on a single short-term rental.

Federal bonus depreciation

$250,000

Added back on the New York return

$250,000

New York taxable income is higher by

$250,000

A year-one figure. The state-side recovery of the added-back amount in later years is a separate schedule and is not modelled here.

Where this sits in the year

State conformity is the last thing that happens to a deduction, not the first. Before it matters, the property has to clear the seven-day average-stay test and the material participation tests, and the loss has to survive basis, at-risk, and the §461(l) cap — $256,000 single and $512,000 married filing jointly for 2026. The path is laid out in does my short-term rental qualify.

Common questions

Does New York allow bonus depreciation?

No — New York does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your New York taxable income in year one, so your state bill does not fall the way your federal bill does.

Does this change my federal deduction?

No. State conformity affects only your state return. The federal bonus deduction is unchanged — which is why a cost-segregation study can still be worth doing in a state that decouples, just for a smaller total benefit.

Is the added-back amount lost?

Not usually. States that require an add-back generally let you recover the amount through ordinary depreciation on the state's own schedule in later years. Full decoupling — the entire federal §168(k) special depreciation deduction is added back on Form IT-225 using addition code A-209. In its place New York allows a depreciation deduction determined under IRC §167 as that section would have applied if the property had been acquired on September 10, 2001 — in practice plain MACRS with no bonus — claimed as subtraction S-213 each year until the property is fully depreciated or disposed of, so the benefit is deferred rather than lost, with a year-of-disposition true-up via S-214. The computation runs on Form IT-398. Beginning with TY2025 the same add-back extends to the new OBBBA §168(n) qualified production property. The only exceptions are resurgence zone property and New York liberty zone property under IRC §1400L(b)(2), neither of which will apply to a typical STR. §179 follows federal with no dollar cap; the single carve-out is a full add-back (code A-208) of any §179 claimed on a sport utility vehicle over 6,000 lbs by a taxpayer who is not an eligible farmer — worth catching if the owner expensed a heavy vehicle against the rental.